June 22, 1934

LIB
CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

And with the four and

a half per cent limitation.

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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

One has a good deal

more assurance than if they are appointed by private shareholders.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

Have we? One has only to look at the history of one great publicly owned enterprise that we have had in this country to see. Certainly the evidence is

against that view. All you have to do is go down to the West Indies, and follow up from there to this country.

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LIB
CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

The point is that the directors would have to take the action in any event. Suspending the twenty-five per cent provision would be an act of the directors in the first instance. Under our provisions it would have to be approved by the government. If it were publicly owned the same procedure would follow, presumably, from what the hon. gentleman has said. He has not suggested that if it were a publicly owned bank and the directors were appointed by the government there would be any change in that part as far as the governor is concerned. Assuming that is as it is now, where would be the difference?

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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

I think it is obvious, even if my right hon. friend cannot see it. If the directors were appointed by the government it would seem that they would be more likely to carry out the wishes of the government by whom they were appointed than would directors appointed by private shareholders.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

What the hon. gentleman suggests proves what I have contended from the start. This view is that the directors are not to think for themselves, that they are to be thought for and to be told what they are to do, without regard to their own views;-whereas in the other instance we imply some intelligent consideration of the questions at issue. There is no doubt that in both cases the initiative must come from the directors, acting in both instances on the request of the government of the day, and if they suggest the suspension of the twenty-five per cent gold coverage merely because a political group said it should be done, as against what their reason told them should be done in the interests of the nation as a whole, they would be reflecting a political judgment on the one hand as against a business judgment on the other. That is the whole story. That is what we have endeavoured to set our face against. The discussions that have taken place here indicate how readily the situation would become charged with danger for the bank itself, even as the situation would become charged with danger with directors who merely carried out the will of either one man or a group of men. That is the position. I am not going to traverse it further except to say that by no process of reasoning which I can apply to the facts and in no case of which I can conceive

Bank of Canada

would it be possible for this bank in any sense to balk or stand in the way of policies of a government being made effective in any manner that the government of the day thought in the public interest, whether fiscal or otherwise.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

Mr. Chairman, the Prime Minister (Mr. Bennett) has not really answered my point beyond giving it as his individual opinion that there would be no possibility of conflict between this bank and the government. He has not given us reasons why such conflict of opinion might not arise. As members of the committee will recall, my point was that, in the absence of any directors appointed by the government, and with all directors being appointed by the shareholders, there might on occasions be no means of bringing about the necessary harmony between the government and the bank with respect to a course of procedure that might vitally affect some great national policy. I pointed out that I thought a case might arise where the bank, being a privately owned institution and privately controlled, and being associated with private banks in' other parts of the empire, might come to have one financial policy to which it would adhere very strongly, but that the government of the day, for very obvious national reasons, might desire to follow another policy, or to alter in some particular, essential to the national interest, the policy of the bank. The government might have a policy with respect to trade or shipping or some other great national service which would require the cooperation in a friendly way of the bank, and that would not be possible unless the government as well as the shareholders, was represented on the board of directors of the bank. The Prime Minister did say last night that there was the possibility that in time of crisis there might be a moment when there would appear to be conflict, but he thought it would work out all right. I wish I could be as sanguine as he is about everything working out all right. I can understand my right hon. friend having the feelings he has at this time about this phase of the situation; he is going to appoint the governor, he is going to appoint the deputy governor. The shareholders of this bank will appoint the directors, but the real control of the bank's affairs will be in the hands of his own appointee. The governor will be a gentleman, unquestionably, of the same point of view on financial and economic affairs as the right hon. Prime Minister himself. I know the Prime Minister is sincere in the views that he holds as regards both trade and finance, but, with all

respect and deference, I say to him that there are those who believe that his policies are wrong, and that the best interests of this countiy and of the empire would be furthered by policies wholly different from those which he cherishes at the moment. That is where I see the possibility some day of conflict between what may be the policies of this bank and the policies of the administration that may be in office.

I want to make this fact clear: no one could have had the responsibility of being the head of an administration for any time without realizing all that is meant when one speaks of political pressure. I think I would be the first to sympathize with the Prime Minister in his desire so to frame an act that what is termed political pressure would not be permitted to interfere with the successful and independent working of a great financial institution. May I say we may give a wholly wrong meaning to the word "political" in speaking of political pressure. A political influence or point of view is not necessarily something that is contrary to the national interest; a political point of view is one which arises from an endeavour to give expression to public feeling and public opinion, and I submit that in all democratic countries public opinion is the one great factor for which all governments must have consideration. There are times when it is necessary and vital that every institution in the land should be subject to the public opinion of the nation, and this is always the case when it is expressed in a constitutional way in parliament. I do not believe powers should be given any institution that would enable it to put itself in a position of opposition to a government that has been entrusted with great responsibilities of enforcing particular policies.

In order to be perfectly clear, I should like to assert the two definite sets of circumstances I have in mind. The first relates to a conflict which might arise between the government and the bank at any time of crisis regardless of what administration may be in office, a crisis which might arise from unforeseen economic conditions in the country itself. You would then have two powers that would come into conflict with each other; and unless there is some way of harmonizing them great mischief may be done. You have the money power represented by the central bank and you have the political power represented by the government. I am not one of those who is given to indulging in the extravagant language which is used in these times about money power and the terrors of international

Bank of Canada

banking and finance, blit no one can live in this day and age without realizing that we have in the money power of the world an invisible force which is all-powerful in different countries at the present time. What is being proposed under this legislation is that the government shall part with its control over the issue of currency and over national credit to a private corporation which is a great banking institution and which to a certain extent is to regulate the affairs of all other banks. When I say that the banldng institutions are to be all one, I do not mean that the central bank will be controlled by the chartered banks of the country. What I do mean to say is that all questions relating to currency and national credit will hereafter be in the hands of the central bank and other banks throughout the country and no longer in the hands of the government. They will be in the hands of the banking interests, which means in the hands of the financial interests, and parliament will have parted altogether with any control it has over the issue of currency or over credit. There are those who hold that when a nation parts with its control over currency and national credit, it does not matter very much who makes the laws of that nation. The power that controls the currency and the credit of the country is a power that, if there is such a thing at all as political influence of the kind referred to by the Prime Minister, can make itself felt upon governments.

I say that power of influence of governments and defiance of governments by the money power is being created by this act in the form in which it is at present, and the only way in which that possibility can be avoided is for the government to see to it that, on the board of directors who are to direct this institution, there are representatives of the government, who will not own any of the shares, but who will be the appointees of the government placed there solely to watch and safe guard the public interest. I think my right hon. friend must agree that in these matters of large finance, check and counter check is wholly advisable. It is advisable in financial transactions of a limited size, and it is more necessary as well as advisable in those of considerable size. But here are financial transactions of the greatest magnitude conceivable, and check and counter check are imperative. I do think the directorate of the bank ought to be so formed that, whether the pressure is upon the bank from the government on the one side, or upon the government from the financial interests and through the bank on

the other, there should be on the board of directors some one or more persons who will be quick to sense the situation, give the danger signal, and arouse the country to the pressure which is being brought to bear. There is the danger of a government bringing too much in the way of pressure to bear on a central bank. On the other hand, there is equal danger of the financial interests that are allied with the banks bringing influence to bear upon a government. There will be both these dangers always, and the only way in which that possibility can be lessened is by making sure that both powers, the money power and the power of government, are represented on a common board so that one or the other will be in a position to direct the attention of the people at large to the dangers which they may see developing in the affairs of an institution which is or ought to be a great national trust.

May I now direct attention to the other set of circumstances I have in mind, namely, the difficulties that I see which may arise in carrying out national policies when there is a change of administration. Here I want to differ absolutely from and to take issue with the Prime Minister in what he said last night. In order that I may not misinterpret what he said after I had asked for an explanation as to a certain point, I shall quote the words of my right hon. friend as they appear at page 4195 of Hansard:

If the government were in complete control of the bank it would mean that if you had one government succeeded by another the bank would naturally change its policy, assuming that the policy was as the right hon. gentleman suggested. Then you would have governments controlling policies without continuity. What we wish to secure is a policy based upon the economic conditions of the country, not a policy of the bank based upon policies of a government. That is what the right hon. gentleman desires.

What I should like to ask is: Are the institutions created by governments themselves to be made by their very constitutions so powerful that in the matter of national policies they can regard themselves as wholly beyond the direction of a government, where those policies are the result of the will of the people as expressed by their representatives in parliament? In no way could it be possible to have more clearly defined the difference between the right hon. gentleman opposite and myself. The Prime Minister will notice that at the moment, I am not suggesting the government should own the bank. I am not at the moment discussing the question of ownership, at all. As I said last night, I think

Bank of Canada

the question of ownership is debatable. I am however discussing the question of control of policy, and I do say that with respect to policies, whether they relate to trade, to shipping, to marketing, to finance, to defence, or to any other phase of a country's economy, those policies, if they are the expression of view of a government representative of the people, should be capable of being carried out without interference from any institution whatever, but rather with the sympathetic cooperation of all institutions. That is the only way in which in a country we can have either democratic or responsible government.

I should like to be very frank and concrete in what I am saying, and in order that the Prime Minister will not think I am in any way seeking to misinterpret his point of view or the point of view of any hon. gentleman opposite, I should like first of all to present the matter as I think he sees it. He knows that he will have the appointment of the governor and of the deputy governor of the bank, and he knows also that those who are likely to be appointed as directors will be governed very largely by the point of view of the governor of the bank. He has asserted -although I believe this evening there has been some modification-that the governor would in all probability be some one who would come from the old country.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

No, I have not modified any statement with respect to the governor.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

What I have said I believe still stands. I think to-night my right hon. friend did go as far as to say that possibly a Canadian could be found for the position.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

I said that yesterday, too.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

I beg your pardon?

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

The right hon. gentleman did not follow me. My statement is in Hansard. What I said was that without experience which could be gained by giving him an opportunity, there was no one in Canada who I thought at the moment could be appointed. I said if there were an appointment made tomorrow it would have to be made under circumstances which would enable the appointee to have five or six months' experience in England, or elsewhere.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

I shall not discuss the question whether or not the one to be appointed governor is to be one whose residence has been in England or in Canada. For the purposes of my argument it is sufficient to say that the Prime Minister will appoint

the governor, and that he will appoint someone who, he believes, holds sound views on economic and financial questions, and views which are sound because in accordance with his own. I believe that is a reasonable assumption.

A few evenings ago, I spoke about an imperial trade policy, and the Prime Minister took strong exception to the use of the word "imperial." He said that I was seeking through the use of that word to create some prejudice. I used it because it is the word in common use to signify what is meant. I notice the right hon. gentleman said he had not used it, but I looked up his language in. the particular address he delivered, and-

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

I did not use it that

night.

Mr. MACKENZIE. KING: Not that

night. I find what he did use in the address I refer to was the expression "common policy," and by a common policy he meant a policy for all parts of the empire. To my way of thinking a common policy for all parts of the empire is what is meant when we speak of an 'imperial policy. The word "imperial" expresses in a very short, concise and complete manner what is meant by the expression "a common policy for all parts of the British Empire." I believe the Prime Minister-and he has never denied it-believes in his heart of hearts that in the matter of trade a common policy for all parts of the British Empire would be in the best interests of the peoples of the British Empire, and I believe further that his tariff policies have been designed towards the end of bringing about a common trade policy throughout the different parts of the empire. That is his point of view, and he is entitled to it. I wish he would debate the matter openly, and let us argue the question as to whether or not that policy would be as good for Canada as what we describe as a world trade policy. A world trade policy, not an empire trade policy, represents the point of view held by hon. gentlemen on this side of the house. We do not believe that the interests of the British Empire, and those of Canada in particular, are going to be furthered by any common trade policies for all parts of the empire, whether they be called imperial or common policies, or by any other name. We believe in a policy of trading with any and every nation that will trade with us, as best for the empire and best for Canada as a part of the empire. Let us assume that the appointee to the position of governor of the bank would be a gentleman holding the same point of view as is held by the Prime Minister,

Bank of Canada

honestly believing that the right thing to do is to encourage trade within the British Empire and to develop channels of trade throughout the different parts of the empire so that for the most part trade would necessarily flow in empire channels rather than between this country and countries, generally, throughout the world. Is it not altogether probable that the governor of the central bank would find it possible to further that common or imperial trade policy by the opportunities which would be afforded him and his institution, as for example, in dealing with matters of exchange? Would he not, by artificial means, through the manipulation of exchange, be in a position to further the policy which the government has in view, and which, in matters of trade, he and the Prime Minister would hold in common? I am perfectly sure that an institution of the character of a central bank which has to do with a nation's credit, which has to do with the issuing of the nation's currency, which has to do with the regulation of exchange and with great problems of international exchange, could, by artificial means, direct the trade of this country through particular channels and away from other channels.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

May I say to the right

hon. gentleman that that could be done only by parliament giving them the money with which to do it. The stabilization of exchange could not be done without the aid of parliament.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

The Prime

Minister may seek to answer in that way. I believe he is beginning to see the force of what I am saying. In connection with imperial policies of trade or finance may I observe that both are clearly and closely interlocked. No one knows better than the Prime Minister that the facilities which banks afford to importers and exporters determine very largely in what direction and from what sources trade is to flow. Look at the picture as it is beginning to disclose itself. We have, first of all the Bank of England, which stands at the centre. Then there are the central banking institutions already in existence in Australia, New Zealand and South Africa. I believe it is a fact that at the head of each one of these central banks is a gentleman associated- with the Bank of England, or one who has had previous associations with the bank of England. If in Canada we have at the head of our central bank another gentleman who has been trained by the Bank of England, and whose associations are with that bank, what would be more natural than that these central banks within the British empire,

all trained from the London point of view, and all embued with the idea that a great imperial or intraempire trade is the thing to be fostered, should do their utmost further to develop trade in that way to the exclusion of every other? As I say, so long as the Prime Minister, himself, is in office, I can see how he may well entertain the view that there is not likely to be any danger experienced of a character which would lead to any conflict between his government and this new banking institution. But let us assume for a moment that there is a change of administration, and let us assume that a government is in office in Canada which wishes to develop trade throughout the world, trade by Canada, with all the nations of the world, foreign as well as British nations, and does not believe it to be restricted by artificial means in the interests either of Canada or of the empire to have trade so as to confine it mostly to channels within the British Empire. Then according to the Prime Minister's reasoning, and the grounds he adduced for giving this bank the constitution he is giving to it, we are face to face with this following situation: The bank is to

maintain continuity in its financial policy- an imperial financial policy to support an imperial trade policy-and is not on any account to change its policy because there has come into office a government with other policies which have been approved by the people. The words are as plain as the English language can make them. The Prime Minister said:

What we wish to secure is a policy based on the economic conditions of the country, not a bank based on the policies of the government.

The policies that any government would have would be policies based on the economic conditions of the country, especially where they were policies that had been presented to the people, and which the people had approved, and which as a consequence the people would have a right to expect that every institution which exists in the land would harmoniously help to further to the largest possible extent. I see there a very great danger. Possibly the Prime Minister will come back with this reply, that parliament can always alter the statute which it has made. But, as he himself is so fond of saying, we are obliged to deal with conditions and not with theories, and we know that parliament consists of two houses and that the approval of both houses is necessary to the amendment of any statute. We know that at the present time the other house of parliament is one which represents very strongly the point of view of the Prime Minister of the day, and it will

Bank of Canada

probably be many years to come before the other house on some of these matters of trade and finance, is at all likely to be in sympathy with a House of Commons which might be differently constituted from the present one.

In such circumstances what will the position be? If there are no directors of the bank who are appointed by the government itself and whose duty it is to protect the national interest from the point of view of the government, an incoming administration which has trade policies different from those of the present administration, unless it were so fortunate as to find in the governor of the bank a gentleman who would be quite prepared to accept the policies of the government on important national matters and seek to further them, would find itself in a position where it might not be able to carry out the very policies which the country had sent it into office to further. This is the time to mention that possibility. It is the point I brought to the Prime Minister's attention last night. I do not think he has given a satisfactory reply to it.

The obvious thing to be done in these circumstances is to provide that at least a certain number of directors shall be appointed by the government of the day, and that these directors, who will not own shares, should sit on the board to cooperate in shaping the policies of the bank and to see that at all times, with respect to great national policies, those of the bank and those of the country are brought as much as possible into common accord.

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CON

George Brecken Nicholson

Conservative (1867-1942)

Mr. NICHOLSON:

Will the right hon. gentleman permit a question in order that laymen in the house may get a clear idea of what he has in his mind? Will he suggest that the governor and deputy governor and even the directors representing the public should be changed with a change of government in this country, in other words be made political appointments? His argument suggests to me as a layman that he feels that the governor, the deputy governor and a majority of the board of directors should be changed or dismissed with each change of government.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

I have said nothing about the governor and nothing about the deputy governor, so my hon. friend may set his mind at rest in that regard. It is admitted that the present Prime Minister will appoint a governor and I assume he will be a person who is sympathetic with the prime minister's fiscal and other policies. I have said nothing about the governor or the deputy governor.

As to the directors, the present proposal is that they shall all be appointed by the shareholders. No one of the directors is to be an appointee of the government. My first point is that, regardless of which party may be in office, it is advisable that the government itself should appoint some of the directors, that some of the directors should feel that their appointment is made by the government, just as other directors will feel that their appointment is made by the shareholders. The persons appointed as directors by the shareholders will doubless feel that they have a special obligation to the shareholders. Surely it might be considered just as honourable that a number of directors to be named by the government should feel that they owed a special obligation to the government of the country which has appointed them. I am suggesting that the board of directors should be divided as between those nominated by the shareholders and those nominated by the government. I suggest that course as a means of avoiding a possible conflict between the bank and the government, or between what I may describe as the money power on the one hand and the political power on the other.

I say that, if we ever come to one of those great issues into which the world is all too quickly heading, of a conflict between money power on the one hand and political power on the other, there can be but one answer to a conflict of that kind, and that is the ultimate control by the political power and not by the money power. By the provisions of this bill we are placing pretty much all control in the hands of the money power.

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June 22, 1934